What happens to those insolvent people?

Question

Below is what was written in the London Lite this evening:

"A record number of people walked away from their debts by declaring themselves bankrupt or insolvent this summer.

The total hit an all-time high of 27,644 in the last three months, more than 50 per cent more than the same period in 2005."

I was confused by the phrase 'walked away'. Does it mean that in Britain, when you borrow too much to pay back, you can simply get away with it, and the banks have to write off the debts? Does it mean that these people can retain their house too?

Answer 1

When someone can't pay back money they have borrowed the only option is to declare themselves insolvent. They can do this in two ways.

1. They can set up an Individual Voluntary Arrangement known as an IVA

2. They can declare themselves bankrupt or be made bankrupt by a creditor.

Depending on what assets the individual has will play an important part in the decision process.

If you have no assets then bankruptcy would be the best option as all your debts are written off and you are free of all responsibility in some cases as little as six months.

If you own a property, shares or other investments and declared yourself bankrupt or were made bankrupt by a creditor, all those assets would be sold by a trustee who would use the sale proceeds to pay himself first (20%+) then distribute the remaining among to your creditors. You loose everything.

Bankruptcy is not to be taken lightly. It is very serious and in some cases you are made to appear in court to give evidence about your finances and explain what happened to the money you borrowed. Once you become bankrupt you must go straight to the offices of the Official Receiver for an interview and fill up several forms.

You must declare all your assets, bank accounts etc. If you fail to disclose some assets you can be sent to prison. Bankruptcy is a dirty business where the only real winners are the professionals involved.

To set up an IVA you would first have to get the consent of your creditors. Your creditors would examine your finances to see how much they would get if you went bankrupt and how much they would get if you set up an IVA. If you can convince them that they are better off agreeing to your IVA then it is the better of two evils. You retain some control.

With an IVA you make a legal agreement setting out an arrangement for paying off an agreed sum over a period of time. Sometimes this can be all the debt or a percentage of it.

There has been a rise in insolvency due to a change in the law two years ago and the involvement of insolvency practitioners who have taken advantage of this change in the law. These IP's advertise their services in a way that gives a false impression of the insolvency laws. The press have reported in a similar fashion but in reality things are not so easy that you can "walk away" especially if you are a homeowner or have family responsibilities.

Some business people I know have gone bankrupt. They have planned their bankruptcy years in advance with the help of solicitors, accountants, insolvency practitioners and off shore companies. They have hidden their assets by putting them out of reach of their creditors.

Many trustees don't have the funds to go chasing after the assets that can take years in the courts.

So my advice for anyone planning to go bankrupt is to make sure you have plenty of money or none at all!!

Answer 2

Essentially yes.

With bankruptcy you lose any property you own. With Voluntary Insolvency (bankruptcy lite AKA IVA) you may well get to keep it. Must admit when I read that tonight I wondered why the hell I bother working so hard.

With IVAs you have to prove you can no longer afford repayments of anything, you then come to a deal about what you will repay over a 5 year period. The downside is that if you do it through one of these daytime TV advert people they'll charge you anywhere up to £15,000 to arrange things.

Answer 3

Bankruptcy is when you go to court and basically argue that you are unable to pay your debts. If the court agrees, your debts are cancelled. However, the fact that you have done this is on your record, and can seriously affect your future credit.

In the US there are a few different kinds of bankruptcy, one is when your debts are simply cancelled, and another is when your debts are deferred instead, and you come up with a plan to pay them off over time. Either way, bankruptcy on your record can be very damaging to your credit rating.

I don't know how similar it is in the UK.

Answer 4

properly, first this is relatively a intense reaction. That mentioned... I relatively have been working some unfold sheet projections and what I see is that i'm headed there too. I doubt there will be plenty help available the two. i ought to desire social protection does no longer circulate away yet who knows. Sooo... I relatively have been concepts storming with a number of my contemporaries... the only element we are able to work out is a few sort of communal residing element the place all of us circulate in on some rat heap development someplace and share the burden. on no account the place I wanna circulate... yet... as they say... necessity is the mummy of invention i think. needless to say your earnings can't be 0 for this to artwork. additionally you prob ought to seek advice from the close by government approximately government housing because of the fact which you will possibly be able to qualify. yet another theory so which you could inspect is that cellular residences at the instant are not considered "genuine" property in lots of places and are not taxed like residences... so... in case you got a used one and placed it on a rented lot you prob can carry it against the tax burden. i'm no longer saying that any people wanna be in a single... yet its extra desirable than a street cut back good day. yet sliced any way you wanna cut back it... this is in basic terms no longer hassle-free.

Answer 5

It's not that easy and it costs £475 to file for Bankruptcy. Impossible if you have no money.

Answer 6

It is not that simple - you can't. It is just bad journalism.